Nonprofits Providing Parking and Metro Benefits

Renner Nonprofit News, April 10, 2018—

Nonprofits Providing Parking and Metro Benefits— Prepare to Pay UBIT.

If you provide your nonprofit’s employees with a parking space, parking reimbursement or metro pass in 2018, you’ll be filing a 990-T and paying tax on those payments at the rate of 21%.

Why is this happening?

Starting in 2018, for-profit employers can no longer deduct parking and metro benefits they provide to their employees.  The Tax Cuts and Jobs Act eliminated the deduction for qualified transportation benefits.  The IRS recently clarified that this means all transportation benefits, whether provided to employees directly by the employer, through a bono fide reimbursement arrangement or through a compensation reduction agreement.

To put nonprofit employers on equal footing with for profits, nonprofit employers must treat payments of transportation fringe benefits to employees as unrelated business income and pay unrelated business income tax (UBIT).

The IRS recently clarified this issue in the newly updated Publication 15-B, “Employer’s Tax Guide to Fringe Benefits”.  Although transportation benefits paid through a qualified plan remain tax free to the employees, providing metro and parking benefits to employees on a pre-tax basis through a Qualified Transportation Fringe Benefit Plan will not prevent the payments from creating UBIT to the nonprofit employer.

What nonprofits should do:

  • Plan to file Form 990-T after year end. The due date is the same as your 990.  States tax UBIT too, so plan to file a state counterpart.
  • Calculate your projected UBIT now. The federal tax rate is 21%.  Your tax will be 21% of the total parking and metro benefits you pay to your employees during 2018.  Include the value of employer-provided parking spaces.
  • Pay in your tax quarterly. The 990-W worksheet will help you calculate your tax, which you must pay in electronically using EFTPS.  Payments are due on the 15th day of the 4th, 6th, 9th and 12th months of your fiscal year.  For calendar year nonprofits, the first payment is due April 15, 2018.

We’re providing this information to give you a general idea of the new provision.  There’s more to know about transportation benefits and UBIT, so consult your tax advisor for details on how this new provision will apply to you and your specific facts and circumstances.

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